WASHINGTON — The COVID-19 outbreak is expected to cause a drastic decrease in remittances to Latin America and the Caribbean but could play a role in increasing digitization of money transfer and banking services in the region.
“This is devastating for the region because we are so heavily dependent on the remittances.”— Piero Coen, CEO, Coen Group
Estimates from the Inter-American Dialogue show U.S. outbound remittances could drop by 7% from 2019 — representing about $6 billion in lost funds for those who rely on family and friends abroad to help make ends meet. Countries in Latin America and the Caribbean, where many economies are highly dependent on remittances, would be the hardest hit by a recession and migrant job loss in the U.S. service and construction sectors due to widespread business closures aimed at controlling the pandemic.
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In 2019, 40 million households in the region received remittances, representing the largest share of gross domestic product in some of Latin America and the Caribbean’s most politically unstable countries: Honduras, Nicaragua, Guatemala, and Haiti.
“This is devastating for the region because we are so heavily dependent on the remittances,” said Piero Coen, CEO of the Coen Group, which runs Western Union services in Central America through remittance provider AirPak. He spoke Thursday at an online event hosted by the Inter-American Dialogue.
While it’s too soon to know the true scale of the pandemic’s impact on remittances, the Inter-American Dialogue’s Manuel Orozco said lessons can be drawn from the 2008 financial crisis, which saw the growth in money transfers drop by 12%. A study conducted by the think tank in 2009 found that the total amount of money sent after the crisis dropped 5%, while the frequency of remittances dropped 20%.
Orozco said he expects migration patterns from the region — which went up starting a few years after the financial crisis — to similarly increase in the wake of the pandemic’s economic havoc. Some households in Latin America and the Caribbean can expect reduced income from lower remittances as well as local job loss, Orozco said, compounding economic drivers of migration in a region already suffering from shaky economic growth.
Coen said AirPak expects rapid changes in the way people send and receive money, adding that the money transfer company had already been preparing for such changes before the pandemic.
According to Coen, estimates from before the coronavirus outbreak showed that 30% of remittances to Latin America would be fully digital by 2030 — not requiring either sender or receiver to go to a physical location to process the transaction. He now expects that transition to accelerate as the public is encouraged to stay at home and some banking and cash-out points are closed.
“We’ve been seeing an increased use of our digital wallet in Nicaragua, and we’re strongly promoting it. This is where people feel more comfortable now, cashing out their remittances,” Coen said. “We’re working hand-in-hand with one of the governments in the region to digitalize remittances and disburse government subsidies, digital food vouchers. Other governments in the region will shortly follow.”
Paul Dwyer, CEO of Viamericas Corporation, said his money transfer company is also seeing an acceleration in digitization.
“This is really almost a laboratory experiment. All of a sudden, every impediment — from an individual sender’s point of view — to going online was forcibly removed,” Dwyer said. “Anybody who was going to switch from offline to online is doing so now. And anybody who doesn’t switch now is not switching. The question that industry has debated — about what is the amount of customers that are likely to go online over the next several years — all of a sudden we’re going to find out.”
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